February 13, 2014
SEC Action on Corporate Climate Disclosure Inadequate
by Robert Kropp

Four years after the Commission issued interpretive guidance on climate change disclosure, the
quality of corporate reporting remains low, according to a report from Ceres.

In February 2010, the Securities and Exchange Commission (SEC) issued interpretive guidance on climate change
reporting, which provided “guidance on certain existing disclosure rules that may require a
company to disclose the impact that business or legal developments related to climate change may
have on its business.”

Sustainable institutional investors, a coalition of which
had petitioned the Commission for interpretive guidance on climate risk disclosure in 2007,
commended the decision to issue the guidance. “This is perhaps the biggest development so far in
the long-term campaign to promote wider sustainability reporting,” Lisa Woll, CEO of US SIF: The Forum for Sustainable and Responsible
Investment, said at the time.

“The Guidance outlines expectations from companies in
reporting on “material” regulatory, physical, and indirect risks and opportunities related to
climate change,” a new report from Ceres states. But how effectively is the SEC
enforcing those expectations? In 2010, the year in which the guidance was issued, the Commission
issued 38 letters addressing the issue of corporate climate change disclosure. By 2012, the number
of comment letters issued had fallen to three; and in 2013, there were none.

This despite
the fact that annual disclosure to the SEC of climate-related risks and opportunities by S&P 500
companies remains inadequate. “Most S&P 500 climate disclosures in 10-Ks are very brief, provide
little discussion of material issues, and do not quantify impacts or risks,” the report states.
Furthermore, “Forty one percent of S&P 500 companies did not include any climate related disclosure
at all in their 10-K filings in 2013.”

The inadequacy of corporate reporting to the SEC on
climate change becomes especially marked when one reads that 332 of S&P 500 companies responded to
the annual CDP questionnaire in 2013, and in
fact scored reasonably well. But when it comes to 10-K filings to the SEC, the difference in
quality is striking to say the least. “Only 14% of the 488 S&P 500 companies that filed 10-Ks in
2013 scored above 5 on this report’s 0-100 scoring scale for their SEC climate reporting,” the
Ceres report states. “A score of 5 amounts to about one short paragraph or a couple of lines
focused on climate-related risks or opportunities.”

The report provides five
recommendations for improving the oversight by the SEC of corporate climate disclosure:

Issue more comment letters to companies with inadequate disclosure of material climate risks;
Focus on companies in sectors facing significant climate risks and opportunities when reviewing
corporate filings;
Focus on the adequacy of disclosures concerning recent, major regulatory
developments;
Where reporting appears inadequate, compare SEC filings with a company’s
voluntary disclosures; and
Create a federal interagency task force focused on the business
risks of climate change, and an SEC task force to focus on reviewing climate change disclosures.

The report further recommends “that companies re-examine their strategy and disclosure
related to climate change.”

“Investors want greater transparency on the business risks of
climate change as a means to protect and increase shareholder value,” said Ceres President Mindy
Lubber. “Yet the SEC is not adequately enforcing its own requirements.”

And Anne
Stausboll, CEO of the California Public
Employees’ Retirement System (CalPERS), said, “The Commission’s enforcement of its climate
disclosure guidance will help investors make smarter decisions, and will help companies understand
and mitigate the risks climate change poses to their long-term competitiveness.”